Multi Baggers

Hem Securities

12.00 AM Aug 2nd 2013

TCS

BSE ID : 532540 NSE ID : TCS

RECOMMENDED PRICE1418.75

CURRENT PRICE2774.70 95.57%

Multibagger Follow-up: In our report dated May 4th, 2013; we had initiated buying recommendation in TCS at Rs.1418.75 for the target price of Rs 1730 which was achieved on 19th July 2013 on closing basis. We now rate the stock as HOLD with revised target of Rs.2050 for short term investment horizon.

Tata Consultancy Services

In our report dated May 4th, 2013; we have initiated buying recommendation in TCS at Rs.1418.75 for the target price of Rs.1730 (an appreciation of ~22%) which was achieved on 19th July 2013 on closing basis. We now rate the stock as HOLD with revised target of Rs 2050 for short term investment horizon.

Tata Consultancy Services has registered sharp financials for the recent quarter ended June 2013. A robust top-line growth of 21% was witnessed at Rs.17987.07 crore as against Rs.14868.71 crores clocked in same period last year. The rise in sales is driven by strong volumes which witnessed a growth of 6.10%. Operating profit for Q1FY14 stood at Rs.5144.12 crore vis-a-vis profit of Rs.4323.89 crore for corresponding quarter ended June 2012; an increase of about 19%. Net profits rose to Rs.3830.64 crore for the quarter ended June 2013 compared to Rs.3317.68 crore in Q1FY13; registering growth of 15.46%.

Operating profit margins of the company in the quarter stood at 28.60%; an expansion of 50 bps from 28.10% clocked in Q4FY13 while it witnessed a marginal fall y-o-y. Sequential rise in OPM was helped by rupee depreciation against USD. Net Profit margin was at 21.30% as compared to 22.31% in the like period previous year; depicting a decline of 101 bps. The effective tax rate for the quarter stood at 24.04% as against 21.12% y-o-y and 23.01% q-o-q which has impacted net profit margins. EPS for the quarter was at Rs.19.57 as against Rs.16.95 y-o-y.

Key Highlights

TCS has witnessed highest volume growth in the past seven quarters which drove such a stellar quarter.

During the quarter. TCS has completed the acquisition of Alti, one of the top 5 system integrators of SAP solutions in France with several top French corporations in the banking, financial services, luxury, manufacturing and utilities sectors as its key customers.

During the quarter growth was seen across all industry segments. Banking, Financial services and Insurance (BFSI) segment revenues grew by 20.95% at Rs.7727.98 crores from Rs.6389.24 crores y-o-y. Manufacturing segment revenues grew sharply by 29.38% at Rs.1519.84 crores as against Rs.1174.69 crores in Q4FY13. Retail and Consumer Packaged Goods segment posted a growth of 29.70% at Rs.2534.19 crores as compared with Rs.1953.87 crores y-o-y. Telecom, Media and Entertainment segment registered a growth of 13.47% at Rs.2102.43 from Rs.1852.91 crores y-o-y. Remaining other segments revenues surged 17.29% at Rs.4102.63 crores on y-o-y basis.

In terms of business verticals, TCS registered balanced growth across all its verticals. Application Development and Maintenance segment grew 18.2%, Enterprise Solutions grew 19.9% and Assurance services surged 29.2 % y- o-y. Engineering & Industrial services vertical surmounted 24.8% y-o-y. Infrastructure services vertical revenues zoomed by 35.1% and Global consulting vertical revenues skyrocketed by 50% driving the growth of total revenues. Asset leveraged solution and BPO services segment grew 6.8% and 10.7% y-o-y respectively. The company has added two new US$ 100 million clients taking the number to 19 from 17 clients in this category in Q1FY13. The company continued to hire to support business growth. There was a total gross addition of 10,611 people and net addition stood at 1,390 taking the total employ ee base of 2,77,586 on a consolidated basis. The utilization rate (excluding trainees) was at 82.68% and that including trainees was 72.49%. The attrition rate (LTM) dropped further sequentially to 10.52% including BPO. The attrition rate in IT was at 9.55%, while BPO attrition was higher at 15.77%.

The company has witnessed all-round performance with strong revenue growth across all geographies. US market did extremely well in this quarter with North America posting a growth of 20.2% y-o-y and Latin America revenues climbing sharply by 43.3% y-o-y. Europe also continued to gain strong traction with customers. UK market grew by 21.1% y-o-y and Continental Europe grew 21% y-o-y. MEA (Middle East & Africa) revenues climbed 16.1% and Asia Pacific region grew 12.6% and Indian revenues jumped 30.8% y-o-y. On a sequential basis too, each market grew decently leaving Indian market which de-grew 4.6%.

Conclusion

TCS has come out with robust numbers for the quarter ended June 2013 with growth driven by strong volumes. It has been a broad-based growth across all business verticals and geographies. The attrition rate continues to be one of the best in the industry. After analyzing financials of quarter ended June 2013; we believe that TCS would grow firm going ahead with its broad based growth. Therefore, we upgrade our FY14 and FY15 estimates. Accordingly, EPS for FY14 is estimated at Rs.82.82 and for FY15 at Rs.92.13 in place of Rs.80.37 and Rs.89.43 previously estimated. So, considering its robust fundamentals, strong deal pipeline and increasing client base, company's growth prospects looks promising ahead. We initiate a 'HOLD' on the stock with a target price of Rs.2050 (appreciation of about 13% from current level) with the short investment horizon.

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